At the other end of the spectrum, downstream continues to demonstrate robust financial performance. At US$7.4 billion, the major's downstream's Q1 earnings were at their highest since Q4 2015, and downstream accounted for 94% of the majors' earnings in 2015 and 2016. This role reversal between upstream and downstream has been accompanied by a changing of the guard in the boardroom, with downstream executives moving into CEO positions at Total and Exxon. The familiar language of downstream, of "managing for margin," is being adopted in the upstream segments too.
While it is easy to attribute downstream's success in the past few years to the falling price of crude, which has slashed the cost of a refinery's primary input, this is too simplistic. Refinery margins shrank by around 60% following the Global Financial Crisis as a result of slowing global product demand growth. Downstream has demonstrated the value of a consistent focus on the cost and efficiency agenda.
Upstream has responded vigorously to the challenge of a low-oil-price world by cutting costs and deploying capital more efficiently, but more needs to be done if the sector is to thrive rather than just survive. Downstream has succeeded in recent years by relentlessly focusing on cost efficiency, portfolio rationalisation and driving capital discipline. This has shown that making such structural changes can lead to a sustained improvement in operational and financial performance; upstream must also embrace this lesson.
To read more about the lessons upstream can learn from downstream, read our full Perspective.